Mon Dieu! Hard to believe, but the CEO of Cisco tells me France is Europe's leader when it comes to a boom in entrepreneurship and startups. Surprisingly, he notes that France is number two after the US, in the number of start up companies. And he adds that the French government, led by President Francois Hollande "gets it" in making the switch to digitizing the French economy, where businesses and every appliance or electronic device people own will be connected to the Internet.

Chambers also said the US economy is "very solid" and he's confident about good growth over the next 12 to 24 months. He said higher interest rates are "inevitable", but doesn't believe they will have a major impact on the US economy or businesses and advises companies to "just adjust to it".

As for Cisco stock, up sharply since the company reported strong quarterly results a week ago, Chambers said it feels like the "'90s all over again".

"Our strong momentum is the direct result of how well we have managed our company transformation over the last three plus years and our leadership position in the key technology transitions of cloud, mobility, big data security, collaboration and the Internet of everything," Chambers said, commenting on the results. "Every nation, every company, everything is becoming digitized, and the network is at the center of this transformation."

During his conference call Wednesday night with analysts, he added: "Cisco, has never, ever been better positioned."

In any event, Cisco’s second-quarter switching sales grew by 11% to $3.6 billion and accounted for about one-third of overall revenue. Obviously, its switch-up resonates with Cisco’s business customers.

Of course, there are plenty of things for Chambers to worry about as he looks ahead.

In particular, the company needs to revive sales to telecommunications companies and service providers. In its latest mobile data trends forecast, Cisco recognizes that video traffic is the strongest driver of increasing bandwidth demands. Yet, its sales to video service providers were off 19% for the second quarter.

An equally large concern looking forward is the trend by massive Internet businesses, notably Facebook, to move away from proprietary data center technology in favor of SDN and other open source software options. The mantra: lower expenses, more control, through networking features that can be programmed into commodity server hardware. Or as Facebook engineering vice president Jay Parikh put it this week to the New York Times. "There are efficiencies in terms of people and money, and total cost of ownership models. Most of our big bets are based around huge changes in flexibility though."

This item first appeared in the Feb. 12 edition of Data Sheet, Fortune's daily newsletter on the business of technology. Sign up here.

]]>http://fortune.com/2015/02/12/cisco-second-quarter/feed/0heathclancyWill 2015 mark the end of the great stock buyback binge?http://fortune.com/2015/02/11/stock-buyback-binge/
http://fortune.com/2015/02/11/stock-buyback-binge/#commentsWed, 11 Feb 2015 12:00:11 +0000http://fortune.com/?p=982008]]>Many forces have fueled the bull market we have witnessed over the past six years, but share repurchases are at the top of the list. Driven by low interest rates and an economy rife with uncertainty, Corporate America is awash with cash. Rather than spend that money on internal investments that might not pan out, companies have instead decided to return that money to shareholders by buying their own stock.

The debate over whether it’s better for firms to send money to shareholders in the form of buybacks or in the form of dividends has gone on for decades. But we can all agree that companies ramping up their share repurchasing has buoyed stock prices. This chart from Bianco Research shows how buybacks have soared since the end of the recession and are now close to all-time highs:

You can view this trend as a good sign or a worrying one. On the one hand, companies should only buy their shares when they are confident that the stock has a lot of room to grow, as buying overpriced shares is a terrible use of shareholder money. But, as Will Becker, an analyst with Behind the Numbers, puts in his latest report to clients, history shows that executives and directors plan buybacks at the worst times. He writes:

Buybacks are typically initiated in good times when stock prices are high…. Corporations end up purchasing their own stock at inflated prices, only to have many of these same shares then redeemed by management as compensation committees increasingly hand out these perks in good times.

Nevertheless, it appears that Corporate America plans to stick to its buyback strategy. Goldman Sachs equity strategist David Kosten says that share repurchases will increase by 18% this year, to more than $700 billion. Becker, however, thinks there’s reason to believe that 2015, at least for some companies, might be the year the good ship buyback finally runs ashore.

Writes Becker, “Frankly we believe free cash flow for many of these companies could soon encounter a number of headwinds, thereby making it more difficult for them to expand their buyback programs.”

He cites four examples of companies that could soon run into trouble maintaining their significant buyback programs:

1. Cisco Systems: Over the summer, the network equipment manufacturer announced it’s fourth round of layoffs in as many years, saying it will cut 6,000 jobs or 8% of its workforce. It’s all part of a restructuring the firm has undertaken since 2011, a plan that will cost the company $700 million this year alone.

Becker argues that since the majority of the expenses related to the restructuring are cash-eating severance payments, we can expect Cisco’s cash pile to be drained by this process for some time to come. On top of that, the company’s performance amid its shakeup has been lackluster. Sales shrank in 2014, while its margins have been falling every year since 2011.

Cisco is light on cash, but that hasn’t stopped it from repurchasing its own shares. Buybacks doubled in 2014, financed wholly by new debt offerings.

2. General Mills: The food maker’s stock is up over 10% in the past year, despite the fact that it is undergoing its own restructuring amid declining sales.

Stock buybacks have kept share prices steady for now, but with the company posting an adjusted free cash flow deficit of $1.2 billion in the 12 months ending in October, there’s not much cash lying around to keep up the practice.

3.Coca-Cola: The soft drink giant has struggled to find its footing in an era of falling demand for sugary drinks. Though Coca-Cola posted rising sales in its most recent earnings statement on Tuesday, that comes after four quarters of falling revenue.

To slim down and respond to changing consumer preferences, Coke announced restructuring initiatives in 2012 and 2014 that will cost the firm hundreds of millions of dollars in cash. It too has kept its stock price up more than 11% in the past year despite these problems, primarily a result of its share repurchase program. The company bought $3.9 billion worth of its own shares over the 12 months ending in September.

4.Philip Morris International: Since being spun off by Altria in 2008, Philip Morris has incurred millions of dollars in restructuring costs in its international operations. These charges have increased significantly in recent months, at the same time that it has continued to buy back billions per year in its own stock. The company has taken on debt to facilitate its stock purchases, much of which has been transformed into executive compensation.

While interest rates remain historically low and investment opportunities are scarce, you shouldn’t look for Corporate America to shy away from buying back its own stock. It is a more flexible way to return money to shareholders and it helps keep earnings per share high.

But, as Becker points out, investors should be wary of firms that rely too much on share repurchases, especially ones who do so in the face of declining performance. Firms, like the ones mentioned above, experiencing declining sales and increasing debt can’t be counted on to prop up their share prices with buybacks for very long.

]]>http://fortune.com/2015/02/11/stock-buyback-binge/feed/0Most Admired 2015 — Coca-ColachristopherrmatthewsbuybacksFlip camera founder’s next act: cheeseburgers?http://fortune.com/2014/11/12/flip-camera-founders-next-act-cheeseburgers/
http://fortune.com/2014/11/12/flip-camera-founders-next-act-cheeseburgers/#commentsWed, 12 Nov 2014 14:00:07 +0000http://fortune.com/?p=861585]]>Jonathan Kaplan created a hit video camera, the Flip, that he ultimately sold to Cisco Systems for $590 million. For his next act, he took a big detour to found The Melt, a chain of restaurants specializing in grilled cheese sandwiches.

Now Kaplan is planning more change by tweaking his restaurant menu to include gourmet cheeseburgers, chicken melts and french fries. He is betting that more choices of American staples will draw more customers, never mind all the competition.

Kaplan had previously founded Pure Digital, which struck gold in 2006 when it released the first in a line of pocket-sized video cameras eventually branded Flip Video. Those cameras were known for being dead simple: Press the big red button once to record and again to stop.

In a surprise move, Cisco Systems acquired the company in 2009 for $590 million as part of an odd foray into consumer technology. But after just two years, it abruptly abandoned the effort and killed the Flip camera line.

For his part, Kaplan says he’s not bitter about Flip’s demise and, ultimately, invested in GoPro GPRO, another popular camera maker that went public in June.

“The mission of Flip was to democratize video for the world,” he says. “The fact that Cisco decided to end that mission, and well, GoPro is continuing it. I love it.”

With his restaurants, Kaplan’s goal is to make healthier meals available to the masses, starting with fast food. The way he sees it, 90% of fast food today is what he calls “quick service restaurants” -- chains like McDonald’s MCD, Burger King BKW, and Wendy’s that prioritize speedy preparation and low pricing. Less than 10% are “better burger restaurants” that use higher-quality ingredients, he says.

Kaplan argues that his burgers are tastier than those from McDonald’s, yet lower in calories, fat and sodium. But where McDonald’s food processing practices became fodder for eye-opening documentaries like Food Inc., The Melt’s Angus and Wagyu beef patties are all-natural and largely made with locally-sourced ingredients.

The risk, of course, is that there are no shortage of restaurants selling cheeseburgers and fries. His burgers, which start at $4.95, also happen to be more expensive than the typical fast-food joint.

“We knew kids were going to eat American classics,” says Kaplan, who has a 9-year-old daughter. “They’re going to eat pizza. They’re going to eat Chinese food. They’re going to eat grilled cheese. We wanted to pick an industry where we could make a statement by only having 100% all-natural products and not having say, high-fructose corn syrup.”

With that in mind, he launched The Melt in 2011 with undisclosed funding from backers like Sequoia Capital. The chain’s 15 restaurants generate more than $15 million in annual revenues, which is not bad for a grilled cheese startup, but a far cry still from what Cisco paid out for Pure Digital. By offering a larger menu of American staples starting this week, and opening locations in California and Colorado next year, Kaplan obviously hopes The Melt will go mainstream the way his Flip cameras once did.

“When Whole Foods launched, it changed the way people buy groceries,” he says. “We just want to touch enough people’s lives the way they did.”

]]>http://fortune.com/2014/11/12/flip-camera-founders-next-act-cheeseburgers/feed/0Screen Shot 2014-11-11 at 3.53.34 PMJP MangalindanFor Cisco’s John Chambers, a retirement that’s imminent and elusivehttp://fortune.com/2014/09/19/cisco-ceo-john-chambers-retirement/
http://fortune.com/2014/09/19/cisco-ceo-john-chambers-retirement/#commentsFri, 19 Sep 2014 20:38:49 +0000http://fortune.com/?p=793886]]>On Thursday evening, Oracle announced to much surprise that founder and CEO Larry Ellison will step down from his long-held post. He’ll become executive chairman and CTO, ceding the top spot to Safra Catz and Mark Hurd after 37 years. Ellison, 70, is by far the longest-serving chief in tech, but he’s hardly the only one whose time at the top can be measured by the decade.

Cisco CEO John Chambers took the helm of the San Jose, Calif.-based networking company in January 1995 and presided over one of the great runs in the industry, pushing the company onto the Fortune 500 list (#332, in 1997) and past a market capitalization of $100 billion (1998) to become, for a brief moment in 2000, the most valuable company in the world (at about $550 billion). Then the market’s bottom fell out in the dot-com bust.

In 2012, Chambers said that he expected to retire in two to four years, naming development and sales president Robert Lloyd, field operations SVP Chuck Robbins, and services SVP Edzard Overbeek as possible successors. For this reason, an unusual amount of anxiety and breathless anticipation accompanied Cisco’s most recent earnings report. The date, August 14, was just nine days before Chambers’ 65th birthday. Could investors expect succession news with the financial results?

It came and passed with little leadership news, of course--another debunked retirement rumor in a long line of them that stretches back well over a decade. Chambers’ retirement has been “imminent” for years, yet the test of time has shown each and every rumor to be greatly exaggerated. This one was no exception, despite news of thousands of layoffs.

“John has consistently said that the next time he talks about succession is when he announces succession,” a company spokesman tells Fortune. “This has not changed.”

Two things have changed, however. First, Chambers is now 65, the symbolic age that at many companies would mandate retirement. Second, the research firm Gordon Haskett issued a report stating that the firm still expects Chambers to announce his retirement soon, calling Cisco “a company operating without a named successor.”

The average tenure of a CEO is roughly eight years. Chambers has been in the role for almost 20. What has allowed him to buck that trend--and how much longer can he last?

‘Networking is a brutal business’

“John Chambers has had a remarkable ride by any measure,” says Charles King, principal analyst with Pund-IT.

That ride began back in 1995, when Chambers, then 46, took Cisco’s top job. At the time, the rise of the Internet had put a lusty wind in Cisco’s sails, and the company’s routers and switches soon came to be viewed as key vertebrae in the backbone of an increasingly connected world. Since March 2000, when Cisco CSCO briefly edged out Microsoft as the world’s most valuable company, there have been plenty of rough patches: several rounds of layoffs, failed acquisitions (remember the Flip camcorder?), and lackluster stock performance.

Cisco under Chambers has also been under considerable pressure in recent years from emerging technology trends that challenge its core businesses. One example? Software-defined networking, an approach that is considered to be cheaper and more flexible than the traditional networking equipment upon which Cisco built its name.

Cisco does have an answer for that, which it calls Insieme. (“I see SDN as something we'll embrace and get the benefits of,” Chambers said in the company’s most recent earnings call.) Still, there has been “some public grumbling about the company being late to that game and with less innovative products than some others,” King points out, even as Cisco remains the leader in its core networking markets and performs well in newer areas like x86 servers.

“Networking as a whole is a brutal business because, unlike computing, applications haven't changed that much--switching is switching and routing is routing--while semiconductor progress has commoditized costs and put downward pressure on prices,” says Peter Christy, a research director for networking with 451 Research. “Chambers has driven many attempts to broaden Cisco's portfolio and grab more wallet share. Some, like server computing or IP telephony, have succeeded brilliantly. Others, like consumer efforts--e.g. the Flip camera--not so.”

Those failed bets are fodder for critics calling for Chambers to retire. Supporters, meanwhile, say he has shown resilience as well as the confidence to make bets that may not work out.

Christian Renaud, a senior analyst also with 451 Research, worked under Chambers at Cisco for more than a decade in the late 1990s and early 2000s. He credits Chambers’ tenure for a long-view perspective that short-term CEOs often miss. “He steered the company from just over a thousand people when I started working for him to over 65,000 when I left,” Renaud recalls. “Under his leadership, Cisco has successfully weathered large market transitions, and not only survived but thrived.”

Other former colleagues tell a similar tale. “Having known him for more than two decades, I am amazed at his nonstop energy and decisive courage in navigating Cisco through both its highs and lows,” says ex-Cisco exec Jayshree Ullal, who is now chief executive of Arista Networks, which competes with Cisco.

It is an inherent part of the CEO role that you get credit for the good times and blame for the bad. Take Cisco’s layoffs, for example--Chambers is equally responsible for those as he is for the company’s growth, Renaud says. “I know how much the layoffs in 2001 emotionally impacted John, as I suspect the layoffs in 2009 did as well,” he says. “This can't be easy for him, but it is part of the cycle of every business.”

Chambers spent many years in sales during the early part of his career. It’s possible that background may be part of what has helped him endure. “Great salesmen run on a special kind of real-world optimism. You know--head in the clouds, feet on the ground,” says John Waters, editor-at-large for Application Development Trends and author of John Chambers and the Cisco Way. “Add an almost devout focus on the customer, and you've got a combo of personal traits that surely helped to keep him in the big chair.”

“IT CEOs typically call the shots on their career paths until they lose the faith of their customers or shareholders,” King says. That usually happens in one of three ways: Either the CEO misses a key evolutionary shift in the industry, wastes money on unsuccessful products, or fails to deliver the returns desired by large institutional investors, he says.

In Chambers’ case, the last reason is the most pressing. “Much like Microsoft under [Steve] Ballmer, Cisco shares have for the past decade been mired in a fairly narrow trading range--between $15 and $30--and the stock has mostly failed to catch fire in major market advances, including the one currently under way,” King says. “Since the company offers only relatively small dividends--currently $0.19 per share, compared to $0.28 per share for Microsoft and $1.10 per share for IBM--I expect some Cisco investors are wondering how the company might fare under a different leader.”

Cisco has plenty of top talent in its executive suite, says Robert Bradford, president and CEO of the Center for Simplified Strategic Planning. “If the company were in a more difficult strategic situation, they might look outside,” he says. “Given their performance, I wouldn’t.”

Chambers has done all the right things to ensure a smooth succession, says Scott Saslow, founder and CEO of the Institute of Executive Development. The process so far seems “near perfect,” he says: Chambers has pre-announced his intentions years in advance; he has mentioned specific executives who are internal candidates for the job; he would leave the company on very solid financial footing. “It is rare to see all three of these conditions,” Saslow says.

Most boards of directors facing a transition aren’t as lucky as Cisco’s will be, Saslow adds. “The vast majority don’t think they have enough ready successors for the CEO position,” Saslow says. “Given that Chambers has stated that Cisco has several, they appear to be way ahead of the market.”

Cisco’s retirement rumors once worried Renaud, the 451 Research analyst. That’s no longer so. “John has done a great job in recent years of building a succession plan and strong bench in preparation for an inevitable transition,” Renaud says. “That wasn't always the case, and I'd say his bench now is the strongest I've ever seen it. If he was going to retire, the company would be left in good shape.”

]]>http://fortune.com/2014/09/19/cisco-ceo-john-chambers-retirement/feed/0soccerrogueHow tech companies compare in employee diversityhttp://fortune.com/2014/08/29/how-tech-companies-compare-in-employee-diversity/
http://fortune.com/2014/08/29/how-tech-companies-compare-in-employee-diversity/#commentsFri, 29 Aug 2014 14:00:58 +0000http://fortune.com/?p=775388]]>Silicon Valley companies like Google, Apple and Facebook may be innovative, but they sure aren’t when it comes to making their workplaces diverse.

Criticized for their hiring practices, tech companies started publishing employee demographic data over the past few months. It only confirmed what many people had suspected: White and Asian men dominate. Everyone else – women, blacks and Hispanics – are severely lacking.

In many cases, the companies issued a sort of apology in tandem with their diversity reports. “As CEO, I'm not satisfied with the numbers on this page,” Apple CEO Tim Cook wrote in a blog post online. "Put simply, Google is not where we want to be when it comes to diversity,” Laszlo Bock, Google’s senior vice president of people operations, said.

At least 14 tech companies have released data. In an effort to provide further clarity, Fortune has ranked them in individual categories and then again overall, using a point system. Here’s how they compare:

Ethnic diversity (leadership only)

Overall rankings

To calculate how the 14 tech companies fared overall, Fortune assigned points based on how they ranked in five categories: Overall gender diversity, overall ethnic diversity, gender diversity of the leadership team, ethnic diversity of the leadership team and gender diversity among technical workers. Companies that failed to report data in a particular category were given last place points for that category. Here’s how they stacked up, at least by Fortune’s measure:

]]>http://fortune.com/2014/08/29/how-tech-companies-compare-in-employee-diversity/feed/0131218092729-edd-san-francisco-map2JP Mangalindangender-overallgender-leadershipethnic-leadershipethnic-leadershipCisco tops earnings estimates, but slashes 6,000 jobshttp://fortune.com/2014/08/13/cisco-tops-earnings-estimates-but-slashes-6000-jobs/
http://fortune.com/2014/08/13/cisco-tops-earnings-estimates-but-slashes-6000-jobs/#commentsWed, 13 Aug 2014 22:30:26 +0000http://fortune.com/?p=770079]]>The takeaway: Shares of Cisco Systems CSCO are down more than 1% in after-hours trading after the networking company posted earnings for its fourth fiscal quarter that beat analysts’ estimates yet came with the sobering news that the company plans to cut 6,000 jobs, or 8% of its global workforce. Cisco CEO John Chambers referred to the move as “a limited restructuring” and a “reallocation of resources” on the earnings call that followed the release of its results, which boil down to a better-than-expected increase in earnings and flat revenue for its fourth fiscal quarter, which ended July 26.

Chambers said the company will take a pre-tax charge between $250 million and $350 million in the first quarter of its 2015 fiscal year as a result of the restructuring, with the full-year charge expected to hit $700 million. The company said it is expecting revenue to either be flat or up as much as 1% in the first quarter of 2015, while earnings are expected to drop slightly.

The company said it would reinvest cost-savings from the job cuts in some of its core growth areas, including cloud computing and security. “We are focused on growth, innovation and talent, especially in the areas of security, data center, software, cloud and internet of everything,” Chambers said in a statement. He added during the call that investment in those growth areas is essential if Cisco is “going to become the number-one IT player.”

What’s interesting: Chambers noted the “tough environment” in which the company operates and focused on its need to shake things up in order to avoid falling behind its competitors. “If we don’t disrupt ourselves . . . we will get left behind,” Chambers said.

The job cuts announced Wednesday are only the most recent for the San Jose, California-based company, which laid off roughly 12,000 people in a series of cuts in recent years as the company faced slowing sales. In its latest earnings report, Cisco’s product sales beat analysts’ expectations but still fell 2% year-over-year in the fourth quarter and were down 4.8% for the fiscal year.

The numbers: Cisco beat Wall Street’s estimates by earning 43 cents per share during the quarter and posting sales of $12.4 billion, which were flat year-over-year. For Cisco’s fiscal 2014, the company reported nearly a 20% dip in earnings per share, to $1.49, year-over-year as well as a 3% decline in sales, to $47.1 billion. The company reported profits of $2.2 billion for the quarter, down 1% from the final quarter last year, while full-year profits were flat at $10.9 billion.

“Of the top 5 or 6 [top IT] players today, only 1 will exist in 5 years,” Chambers told Fortune’s Andy Serwer at Brainstorm Tech 2014 — a bold reference that presumably includes competitors HP HPQ and IBM IBM. Even more dire, he predicted that just one-third of all major enterprise companies will exist in 25 years, becoming casualties in what he recently called a “brutal consolidation” of IT. As more businesses and organizations migrate, they rely more and more on networking solutions like those offered by newer services like Rackspace RAX.

The Cisco CEO wasn’t all doom and gloom, however. Over the last 2 years, Cisco CSCO. has set some extremely high goals for itself, including becoming the #1 IT company. It also wants to be at the forefront of a growing movement called the Internet of Things, where the majority of devices in the home — even that Whirlpool fridge — is connected to Web. And Chambers argues that’s possible because Cisco “isn’t afraid to disrupt itself”: killing services it rolls out quickly if in lieu of others that could yield better sales.

Chambers’s nearly 20-year reign has seen no shortage of controversy, particularly as CISCO has struggled to build successful new revenue streams beyond its traditional router business. (Indeed, Cisco’s stock hasn’t passed $35 a share since 2001.) Which has prompted speculation about when Chambers could might make way for a successor. Answered Chambers simply: “No comment.”

]]>http://fortune.com/2014/07/15/cisco-ceo-two-thirds-of-enterprise-companies-wont-exist-in-25-years/feed/0Cisco CEO John Chambers at Fortune Brainstorm Tech 2014JP MangalindanIs America’s China strategy failing?http://fortune.com/2014/07/08/is-americas-china-strategy-failing/
http://fortune.com/2014/07/08/is-americas-china-strategy-failing/#commentsTue, 08 Jul 2014 15:00:46 +0000http://fortune.com/?p=740633]]>When U.S. officials meet their Chinese counterparts in Beijing Wednesday for their biannual Strategic and Economic Dialogue, they'll be carrying out a China strategy of opening the world's second largest economy to U.S.-style capitalism and pacifying its foreign and security policies supported for decades by most of America's "best and brightest" - eight presidents, bipartisan Congressional majorities, the nation's business establishment, and its top foreign policy experts and Sinologists. It's also a strategy that is lagging badly today behind the pace of events in China and throughout East Asia, and that could backfire disastrously.

Since the Nixon administration’s opening of China in the early 1970s, the U.S. government has sought to help turn the country from an isolated, Cultural Revolution-wracked pariah into a conventional state fully integrated into international political institutions and the world economy. Washington raise this bar in 2005 by urging China to become a "responsible stakeholder" that would actively help preserve the international peace and prosperity so crucial to its success.

In the 1990s, a more explicitly self-interested goal was added to this China agenda — greater U.S.-China economic integration. U.S. leaders at the time thought China's enormous scale and phenomenal growth would benefit all Americans, and China's widening free market reforms would make closer ties safe strategically. Even better, ever thicker U.S.-China commercial ties would strengthen Chinese capitalism and democracy. And since the financial crisis erupted, Chinese purchases of U.S. government debt have been welcomed as valuable lifelines for a floundering American economy.

These objectives and expectations look increasingly fanciful nowadays. Most conspicuously, far from helping to enhance global security, Beijing has been undermining the East Asia status quo by pressing territorial claims it had long tacitly downplayed. Rising East Asian tensions are not China's fault alone. But no Asian government is embroiled in more disputes with its neighbors, and none has launched such an immense and secretive military buildup.

Worries about Chinese threats to vital U.S. security interests have been voiced since the mid-1990s, due largely to official evidence of Beijing's transfers of nuclear weapons and missile technology to Pakistan, North Korea and Iran. Yet although China has always been challenging even for the multinational businesses that have monopolized so many of expanded commerce's benefits, actual and potential China profits has trumped all in their view, and their vigorous lobbying has kept the U.S.-China integration on course.

Recently, however, the case for U.S. policy focusing almost single-mindedly on a China economic payoff has weakened, too. Despite its overall growth slowdown, the China market's overall size is impossible to ignore, as is the continued potential of still greatly under-developed sectors like healthcare and other personal services. At the same time, China's actual economic performance could well be even more sluggish than suggested by its dubious official statistics, and its prospects are clouded by ever more dangerous pollution, a government drive to curb reckless lending in sectors like housing, and the possibility that these new restraints won't suffice to prevent damaging bubble bursting and a broader hard economic landing.

Just as important, American business is now showing signs of souring on China itself. More and more complain openly about stolen business secrets and Chinese policies that blatantly favor local competitors. Largely as a result, the shares of foreign businesses reporting growing revenues, profits, and operating margins in China last year were still high in absolute terms, but well below recent (2010) peaks, especially for the latter two indicators. Some companies are even leaving or scaling back, as made clear by the 9.3% drop in U.S. investment in China so far this year. And the bilateral tussle over cybersecurity is bound to create further troubles for big U.S. tech firms like Cisco CSCO, IBM IBM, and Microsoft MSFT.

Also undermining the economic rationale for further economic integration has been marked backsliding in Chinese reform. As observed in a recent report from the U.S. Trade Representative's office, China made noteworthy liberalization progress while campaigning for World Trade Organization membership. Since admission has been secured, the state's intervention in the economy has rebounded strongly

In addition to complicating life for U.S. companies in China, this resurgent economic role casts considerable doubt on the newest plank in the integration platform - Washington's campaign to attract more Chinese capital into non-strategic industries. Encouraging more U.S. investment from enterprises largely free of Beijing's interference arguably makes sense, especially given the U.S. recovery's lagging business spending. Encouraging a bigger U.S. economic footprint for actors still deeply embedded in a state capitalist system - and one notorious for corruption - looks like playing with fire.

Because U.S.-China interdependence is already so extensive, Washington can't afford to reverse course suddenly. But prudence requires at least slowing further integration and starting to de-link America's fate from China's in priority areas. More limits on U.S. technology investments in and transfers to China, on U.S. military purchases of Chinese parts and components, and on Chinese takeovers of U.S. businesses, for example, deserve immediate attention.

Even experiments with the worthiest goals can fail - and with disastrous results. Washington urgently needs to ask itself whether its half century old experiment in China strategy is falling into this category.

Alan Tonelson is the founder of RealityChek, a public policy blog. Previously, he was a research fellow at the U.S. Business and Industry Council and an associate editor of Foreign Policy. He is the author of The Race to the Bottom (2002).

]]>http://fortune.com/2014/07/08/is-americas-china-strategy-failing/feed/0U.S.-China relationsnt2192Solar cells charge cell phones on Boston’s new ‘smart’ bencheshttp://fortune.com/2014/06/27/solar-cells-charge-cell-phones-on-bostons-new-smart-benches/
http://fortune.com/2014/06/27/solar-cells-charge-cell-phones-on-bostons-new-smart-benches/#commentsFri, 27 Jun 2014 19:56:03 +0000http://fortune.com/?p=733100]]>Benches in several Boston parks are about to get a little fancy.

Through a partnership with a Massachusetts Institute of Technology Media Lab spinoff, Changing Environments, the city announced Friday that it is set to rollout solar-powered benches in several of its parks that allow you to charge your cell phone. The bench has a USB outlet, but it's up the visitor to bring his or her own cable to plug in the phone. The benches also collect and share a range of data, including location-based information, as well as air quality and noise-level data.

The high-tech benches named "Soofas" will be deployed in green spaces over the next week including Titus Sparrow Park in the South End, the Boston Common and the Rose Kennedy Greenway. The Soofa debuted last week at the White House Maker Faire in Washington, D.C., a gathering of innovators and entrepreneurs.

"Your cell phone doesn't just make phone calls, why should our benches just be seats?" said Mayor Martin J. Walsh. "We are fortunate to have talented entrepreneurs and makers in Boston thinking creatively about sustainability and the next generation of amenities for our residents."

Changing Environments Inc. is a Verizon Innovation Program partner and uses Verizon's 4G LTE network to connect its benches wirelessly to the Internet and upload location-based environmental information. The first units in Boston will be funded by Cisco Systems CSCO.

"Soofa is the first step into Smart Urban Furniture. The possibilities to update the city for the mobile generation are endless and long overdue," said Sandra Richter, Co-founder and CEO of the young startup. "So are more female-lead startups which is why we hope to be a roll-model for women all over the world to found cool companies like Nan Zhao, Jutta Friedrichs and I did.”

“Jack Dorsey is a talented entrepreneur who has helped create groundbreaking new businesses in the social media and commerce spaces,” said Robert A. Iger, Disney’s chairman and chief executive officer, in a statement today. Iger explained that Dorsey’s forward-thinking perspective will prove “extremely valuable” given the company’s priorities, which include utilizing the latest technologies and platforms to expand the company’s reach. Dorsey, for his part, called Disney a “timeless company” he was honored to join.

The addition of Dorsey to Disney’s board is an interesting one. His first successful brainchild, Twitter, is trading at nearly $65 a share, up 43% since its successful IPO in November. That company arguably altered the way 230 million-plus active monthly users communicate and consume information via pithy, real-time updates. Meanwhile, Dorsey’s other venture, the credit card-processing Square, continues to rapidly grow, with a reported projection of nearly $1 billion in revenues next year. It is reportedly eying an IPO in 2014, as well.

“He certainly has what it takes to innovate,” says James MacQuivey, vice president and analyst for Forrester Research He explains Disney’s appointment makes sense given Dorsey’s role in two high-profile businesses that are 100-percent digital.

Which could be exactly what Disney needs. Although the company has long since diversified from its humble origins as a short film production company in 1923 and transformed into a $128 billion media and entertainment company with five segments — Media Networks, Parks and Resorts, Studio Entertainment, Consumer Products and Interactive — folks like Iger obviously believe having the inventiveness of tech visionaries like Dorsey should strengthen the company and its bottom line further.

Dorsey is replacing former Cisco CSCO exec Judith Estrin, who is leaving because she reached the 15-year term limit for the Disney board. His appointment also aligns Dorsey with Facebook COO Sheryl Sandberg, who was named to the Disney board in December, 2009.

Still, MacQuivey understandably remains cautious on whether Dorsey will effect much change. Says MacQuivey: “It all depends on whether Disney will be open their minds up to his influence.”

After the announcement came out earlier today, Dorsey tweeted a picture of an early Mickey Mouse sketch and a quote from Walt Disney: "I only hope we don’t lose sight of one thing--that it was all started by a mouse.”

FORTUNE — Cisco System's CSCO Chief Technology and Strategy Officer Padmasree Warrior may help the company navigate the competitive digital networking sector, but she also has her hands in the retail industry. In September, Warrior became a director at Gap Inc. GPS, adding tech insight to enhance shoppers' experiences and helping balance out the famed organization's male-heavy board.

Fortune’sMost Powerful Women started as a list in 1998, kicked off its annual Summit the following year, and has since become a community of the preeminent women in business, government, philanthropy, education, and the arts. This weekly Q&A features one MPW’s personal take on leadership, aspirations, and (of course) balance.

1.What is the best advice you ever received?

When I left home at 17 to study engineering at the Indian Institute of Technology in Delhi, my dad gave me this advice, “Keep your eyes on the stars and feet on the ground.” I translate this to business and my leadership by having a bold vision while staying focused on the details of execution. This has been my personal mantra also and helps me to keep it real all the time

2. What was the last book you read?

Just finished reading Turn of the Screw by Henry James. This novella is short yet gripping, ambiguous, and opens up so many different interpretations. It's fascinating. I just started reading Hateship, Friendship, Courtship,Loveship, Marriage: Stories by Alice Munro. She won the Nobel Prize for Literature in 2013, a well-deserved honor for her talent as a writer.

3. What would you say to a group of young people looking to enter the tough job market?

Having more than one child. If I knew then what I know now, about career and parenting, I would have had more kids.

5. What is one startup you would have wanted to found?

Hmm … I am not the type to think a lot about "would have, could have, should have." The beauty of technology is that there is always an opportunity to do a “startup” inside a big company or from the ground up.

6. What was the most important thing you learned in school?

Teaching is the best form of learning. To this day, I like to debate ideas and brainstorm concepts with my leaders before turning them into concrete plans.

7. What do you do for fun?

Paint, write haikus, take photographs, cook, and hang out with family and friends.

To simplify. The pace and magnitude of change today is the most dramatic I have ever seen in my professional career, whether it is technological, business model-wise, economic or geo-political. At the same time, the signal-to-noise ratio can be low given how fast information travels now. All of this means, leaders have to be able to sift through a lot of complexity and get to the essence of issues that need attention.

10. What's your take on the "having it all" debate?

“Having it all” does not equal “Doing it all.”

]]>http://fortune.com/2013/12/05/ciscos-cto-keep-your-eyes-on-the-stars-and-feet-on-the-ground/feed/0cleahey89Ending software patents: Has the time come?http://fortune.com/2008/02/28/ending-software-patents-has-the-time-come/
http://fortune.com/2008/02/28/ending-software-patents-has-the-time-come/#commentsThu, 28 Feb 2008 14:52:44 +0000http://test-alley.fortune.com/2008/02/28/ending-software-patents-has-the-time-come/]]>Attempting to ride a wave of corporate and judicial disenchantment with aspects of the current patent system, a new project was unveiled Thursday designed to, as its name bluntly indicates, End Software Patents. (Press release is here. The group’s “first yearly report” on the state of software patents is here.)

The group is intended to become a clearinghouse for information and a hub for those strategizing legal challenges, according to its executive director, Ben Klemens. Though End Software Patents will not initiate litigation of its own, it will be on the lookout for appropriate test cases to support as they arise, he says.

Though the project is being sponsored and funded by leaders of the Free and Open Source Software movement, it hopes to attract support from the wider community of businesses, financial institutions and universities that have all been blindsided in recent years by lawsuits over software patents and their close-cousins, business-method patents.

The group also hopes to attract support from the many financial institutions, including JP Morgan , Merrill Lynch , and NCR Corp. , that have been asked to pay patent holding company DataTreasury for permission to send check images over the Internet. (For a Washington Post story about remarkable proposed federal legislation directed specifically at the DataTreasury patent, click here.)

The point, explains Klemens, is this: “If you’re running a business of any sort, you have to care about the software and business method patents.” That’s because nearly every business today operates a Web site and employs a staff of in-house IT programmers who enable them to conduct business in the digital age. In that sense, every business is now a software business.

Klemens is a mathematician (a guest scholar at the Brookings Institution since 2003) who uses algorithms to analyze data. In a recent article, for instance, he and his co-authors use data analysis to link certain genes to bipolar disorder. “I often run into patents on statistical methods and mathematical algorithms of the type that I implement,” Klemens says. “I don’t think I violate the ones I’ve seen, but I could be wrong, and I don’t know what else is out there. . . . That’s the thing that really woke me up: by doing pure math, I face legal liability. As far as I know, that’s a first in human history.” Klemens’s personal Web site is here.

In a 2005 book, Mathematics You Can’t Use, Klemens criticizes software patents from an economic and legal perspective, and does so in unusually crystalline, easy-to-understand terms. (For chapter one, see here, and for chapter six, see here.)

The book attracted the attention of the Free Software Foundation, whose president, Richard Stallman, has been railing against software patents since at least 1991, for related, but narrower, reasons: they posed a potentially mortal threat to his brainchild, free software — i.e., software, like Linux, that programmers are able freely to examine, modify, and redistribute without fear that their work will ever be taken out of circulation, declared off-limits, or placed behind a toll-booth by private proprietors. (For a feature story on the tension between patents and free and open software, “Microsoft Takes On the Free World,” see here. Generally speaking, though, software patents present dangerous traps for any programmer. Unlike copyrights, which are difficult to infringe inadvertently, a programmer can easily write software that inadvertently infringes someone else’s patent. That happens whenever the programmer independently comes up with an innovation that, unbeknownst to him, someone else has already staked a claim to. While copyrights are relatively easy to write around — since they protect only particular sequences of words or code — patents present broader, vaguer, and more durable obstacles, since they purport to proprietize implementations of ideas.)

In Klemens, the Free Software Foundation saw a potential ally who, thanks to the breadth of his critique and clarity of his writing, could attract a broader audience than just free and open source programmers. “We came to him,” says Peter Brown, the foundation’s executive director, “and said, we really want to fund your work. And he said yes.”

At the moment, the End Software Patents project is formally an offshoot of the Free Software Foundation. It also enjoys the “sponsorship” — though not monetary support — of the Software Freedom Law Center, which is led by Eben Moglen (an outside lawyer for the FSF and its former general counsel), and of the Public Patent Foundation, an organization led by the center’s legal director Dan Ravicher. The Software Freedom Law Center is itself funded largely by such Linux-supporting corporate patrons as IBM (IBM), Hewlett-Packard (HPQ), Red Hat (RHT), Novell (NOVL), Oracle (ORCL), and Sun Microsystems (JAVA).

To be sure, the goal of abolishing software patents remains a radical position in the sense that very few corporations endorse it. (A surprising exception is pharmaceutical manufacturer Eli Lilly & Co. See here. Evidently Lilly recognizes that poor quality software patents are among the problems spurring the tech industry to seek patent reforms, and it hopes to find of way of placating the tech industry without weakening protections for the drug patents that are the lifeblood of the pharmaceutical industry.)

Though many information technology companies, like IBM, Hewlett-Packard, and Cisco, are publicly championing patent reform, they only favor improving the quality of software patents, not abolishing them. After all, there are estimated to be more than 200,000 active, issued software patents in the United States, and most major tech companies have acquired, at considerable expense, substantial portfolios of them. Companies like Philips Electronics also argue that drawing the line between hardware and software is no longer easy, and that many patents relate to processes that were once accomplished using hardware but are now accomplished using software. Why should the modernization of the medium deprive Philips of recognition for its inventions, its lawyers have argued (albeit, in a slightly different context). See here.

Still, Klemens expects his group to find much common ground with the more moderate IT industry reformers, as well as with those whose main bugaboo is business-methods patents. “Pretty much every argument we make, top to bottom, applies to business methods as well,” Klemens says. In addition, the group’s supporters hope that the major tech players are coming to conclude that the vast number of software patents they have accumulated is part of the problem. “There are so many rights in so many hands,” says Moglen, of the Software Freedom Law Center, “everybody is at risk all the time.”

In any case, even if End Software Patents’ goals are extreme, they are not far-fetched. The U.S. Supreme Court has never ruled on the patentability of software, and at one time the predominant assumption among lawyers was that it could not be, because it amounted to nothing more than mathematical algorithms, which, in turn, were considered nonpatentable “laws of nature.”

That assumption was gradually turned upside down through a series of decisions rendered in the 1990s by the U.S. Court of Appeals for the Federal Circuit, a specialized court that had been set up to handle patent appeals, among other things, in 1984. Those decisions suggested that even if pure software itself was not patentable, software when loaded onto a general-purpose computer created, in effect, a new physical device that could then be patented. Some of the same rulings that opened the door to software patents effectively opened the door to “business method” patents, too.

In the past two years, however, it has become clear to all that the U.S. Supreme Court is extremely unhappy with the patent environment that the Federal Circuit has fostered in the two decades since its creation. In eBay v. MercExchange (May 2006), the Court unanimously junked one longstanding rule of that court, and last term, in KSR International v. Teleflex (April 2007), it unceremoniously dispatched another. (In eBay, the Supreme Court ruled that judges need not always enjoin defendants from infringing, even after a patent-holder has proven its case, and in KSR it made it much easier for judges and patent examiners to invalidate patents due to obviousness.)

For Klemens, however, the most encouraging ruling for his agenda was one that, technically, wasn’t. In LabCorp v. MetaboliteLaboratories (June 2006), the Supreme Court had been asked to review the Federal Circuit’s precedents on patentability – the issue that ultimately also determines whether software patents and business-method patents are permissible. After hearing oral argument, the Court punted, deciding that, for technical reasons, it never should have heard the case in the first place. But three justices dissented, writing that they would have overturned the Federal Circuit and invalidated the patent in question, because it clearly amounted to an attempt to patent a nonpatentable “natural phenomenon,” though the phenomenon had been recast in the patent application as a patentable “process.” For that opinion, see here. Klemens contends that software patents amount to much the same thing.

Though only three justices signed the dissent, it does appear that it, in combination with the Supreme Court’s back-of-the-hand treatment of other key Federal Circuit precedents, has led the patent appeals court to engage in some soul-searching. Just two weeks ago, it announced, without having been spurred to do so by the parties, that it would rehear an important patentability case, In re Bilski. (See generally here.) It even asked the parties to brief whether a key ruling it rendered in 1998, State Street Bank & Trust v. Financial Signature Group – one of the pivotal ones greenlighting software and business-method patents — was correctly decided.

“There are test cases all over the place,” observes Klemens. Plainly, his timing is propitious.

Correction: As a commenter points out, in an earlier version I misused the legal term of art “reads on.” Then I did it again in a comment. Regret both errors.

]]>http://fortune.com/2008/02/28/ending-software-patents-has-the-time-come/feed/0srivathslakshmiVMware: All hail the August tech IPOhttp://fortune.com/2007/08/14/vmware-all-hail-the-august-tech-ipo/
http://fortune.com/2007/08/14/vmware-all-hail-the-august-tech-ipo/#commentsTue, 14 Aug 2007 22:15:02 +0000http://test-alley.fortune.com/2007/08/14/vmware-all-hail-the-august-tech-ipo/]]>VMware (VMW) today joins the pantheon of Silicon Valley companies with the audacity to go public not only in the supposed doldrums of summer but in a rotten market to boot. Past honorees: Dearly departed Netscape from 1995 and Google (GOOG), in 2004.

The Palo Alto software shop, a unit of EMC (EMC) burst onto the public markets this morning by trading at $52 after being priced Monday evening at $29. Things have all gone very much as planned for VMware. As I noted in June, anlaysts expected VMware to go public at about $27. Intel (INTC) and Cisco (CSCO) managed to get in before the IPO, buying sizeable stakes at $23 and $25 per share, respectively.

What’s so great about VMware and August IPOs? Let’s take those questions one at a time.

For all the hoo-hah about new this and new that — read: overhyped Web 2.0 companies you’ll never hear about a year from now — VMware actually solves a problem that matters to big technology buyers. Its virtualization approach allows companies with massive server farms to more efficiently use their server capacity. That simultaneously threatens the big server companies like IBM (IBM), Sun (SUNW) and HP (HPQ) and strengthens the market by making servers more valuable. VMware is the “it” company of Silicon Valley right now, again, among real companies that sell real products. Everyone wants to work with them. The company’s growth has been impressive, far better than that of its parent, whose best move of the past half decade turns out to have been buying VMware. (For the numbers on the growth, see the article I did in the print edition of Fortune; It was called “The next big Silicon Valley IPO.” Sometimes we get it right.)

As for August IPOs, is there some kind of magic? Netscape’s bankers told the company it was folly to go public in the heat of the summer. The company was confident. Google never worried about the month it went public. It fretted more over its auction method. Did VMware plan to do its IPO in August and in the midst of a market meltdown? Certainly not the latter. Still, its success today — and let’s remember, to continue to be a success it needs to keep rising, as Google did, not shrivel like Netscape — is a reminder that 1) there is plenty of capital for quality companies and 2) the markets don’t move in lockstep at all times.

]]>http://fortune.com/2007/08/14/vmware-all-hail-the-august-tech-ipo/feed/0srivathslakshmiA Cisco wannabe readies its next movehttp://fortune.com/2007/06/01/a-cisco-wannabe-readies-its-next-move/
http://fortune.com/2007/06/01/a-cisco-wannabe-readies-its-next-move/#commentsFri, 01 Jun 2007 23:11:06 +0000http://test-alley.fortune.com/2007/06/01/a-cisco-wannabe-readies-its-next-move/]]>Watch for news from a hot networking company in Petaluma, Calif., called Calix. What you need to know about Calix is that it makes equipment for the Internet TV (known as IPTV — Stephanie Mehta knows all about this stuff) business and is headed by Carl Russo, who made a fortune by selling Cerent to Cisco (CSCO) back in the day. Russo’s a shrewd guy who’s crazy enough to drive race cars and sane enough to pay someone else to fly his private jet.

He was all set to host an analyst day next week at the swanky Four Seasons hotel in San Francisco, a sort of bold move for a private company. I just got an email from Calix’s reps saying the analyst day has been “POSTPONED for now.” That’s almost always a sign of one of two things: that the company is getting ready to go public or has agreed to be sold.

It’s worth remembering that Cerent filed to go public and then sold to Cisco. It’ll be interesting to see if history repeats itself here. (Corey Hajim speculated about a Calix IPO last year in Fortune.)

]]>http://fortune.com/2007/06/01/a-cisco-wannabe-readies-its-next-move/feed/0srivathslakshmiNews flash: McCain’s a free traderhttp://fortune.com/2007/05/30/news-flash-mccains-a-free-trader/
http://fortune.com/2007/05/30/news-flash-mccains-a-free-trader/#commentsWed, 30 May 2007 17:11:46 +0000http://test-alley.fortune.com/2007/05/30/news-flash-mccains-a-free-trader/]]>John McCain was the warmup act Tuesday night at the Wall Street Journal‘s D5 technology conference at the lush Four Seasons Aviara in Carlsbad, Calif., north of San Diego. It was my second time seeing McCain in action, the first being at Fortune’s Brainstorm conference in Aspen, Colo., last summer. I like McCain, so I was generally pleased with his performance tonight. I feel like his energy level is down slightly, which isn’t an irrelevant gauge of a candidate’s probability of success. That very likely could have to do with the fact that he spends a fair amount of time discussing a dour and unpopular topic, the war in Iraq, which he continues to support. Still, what’s so appealing about McCain is that he speaks his mind. Over the course of the evening he somewhat won over an largely liberal tech-industry crowd.

I won’t go into McCain’s war policy, though many of us chewed it over during dinner, after his speech. Instead, nuggets about his economic policies:

* McCain is an unabashed free trader. He likes to say that regulations usually bring about intended as well as unintended consequences. He specifically said the 1996 Telecommunications Act, which he helped write, is “irrelevant” today.

* Asked if patent reform is high on his list, he replied, “No.”

* McCain says he’d reach out to successful Americans to get them involved in his admininistration. Asked to name names, he offered up Cisco (CSCO) CEO John Chambers and Microsoft (CEO) Steve Ballmer, both of whom were in the room. To read Roger Parloff’s article in the last issue of Fortune, Microsoft Takes on the Free World, Ballmer probably will be excited to know of McCain’s lack of interest in patent reform.)

* On the subject of immigration reform, McCain again flashed his free-trade credentials, saying, “I worry about nativism and protectionism,” implying he’s more comfortable than most politicians with foreign companies and countries investing in U.S. assets.

Do these political speeches at business conferences translate into votes? Can you picture John Chambers as Secretary of Commerce? Sure.